The annualized rate of US economic growth slowed unexpectedly to 2.6% in the final quarter of last year. This information was released Friday by the US Commerce Department. It had been expected by economists to have remained steady at 3% the growth rate for July to September.
Imports to Blame for Slow Us Economic Growth
Imports were apparently to blame for slow US economic growth. A surge in imports was responsible for an annual growth rate of just 2.3%. This could have been hailed as an improvement compared to the 2016 figure of 1.5% but was way below Donald Trump’s target of 3%. This may be one reason for Trump’s projected import taxes on foreign goods.
A 13.9% increase in imports in the final quarter of 2017 did most of the damage. This was the fastest rate of increase in imports since the third quarter of 2010. Exports may have risen, but imports overcame these in the balance of trade. This resulted in a 1.1% reduction in US GDP growth over the quarter.
Will an Import Tax on Chinese Goods Help the US Economy?
That said, it is expected by analysts that the US economy will expand this year by around 3%. Rising oil prices will be a factor, as will the dollar exchange rate. The president has increased tariffs on solar power components and washing machines. The reason given for this is that China is using unfair trade practices to undercut the prices of US manufacturers.
A major issue regarding these increased import taxes is that many of the parts used in China’s industry are supplied by US companies. This includes parts required for Chinese washing machines. Not only that, but US consumers would suffer by having to pay more for their washing machines and other goods. In fact, many believe that the effects outside the US will be less than those with it.
US Companies May Suffer
Should Chinese products be taxed out of the US market, then many US manufacturing companies might face extreme financial difficulties. The fewer imports purchased by Americans, the less business many US importing companies will have.
Not only that, but many Chinese businesses rely upon products and raw materials manufactured in the US. Should sales of Chinese goods crash in the US due to punishing import tariffs then the American companies providing materials to these Chinese firms will face financial difficulties or perhaps even fail.
The Effect of Import Duties on US Economic Growth
For Donald Trump’s policy to work, US companies would have to be able to take up the slack created by a lack of Chinese imports, and those firms supplying materials to the Chinese would have to be guaranteed the same level of business within the US.
US economic growth may well be slowing, but is imposing export duties the answer? Perhaps and perhaps not! Time will tell, although the US manufacturing industry may not be ready to compensate for a lack of Asian imports.
